Lone Wolf Technologies Inc. assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $77,400, the accumulated depreciation is $31,000, its remaining useful life is five years, and its residual value is zero. A proposal was made to replace the present manufacturing procedure with a fully automatic machine that will cost $145,400. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on current and proposed operations:

	Current Operations		Proposed Operations
Sales	$245,400		$245,400
Direct materials	$83,600		$83,600
Direct labor	58,100		19,400
Power and maintenance	5,400		9,300
Taxes, insurance, etc.	1,900		6,400
Selling and administrative expenses	58,100		58,100
Total expenses	$207,100		$176,800

Question Content Area

a. Prepare a differential analysis report for the proposal to replace the machine. Include in the analysis both the net differential change in costs anticipated over the five years and the net annual differential change in costs anticipated.

LONE WOLF TECHNOLOGIES
Replace Machine
Differential Analysis Report

Annual costs and expenses—present machine
Annual costs and expenses—new machine
Annual differential decrease in costs and expenses Annual differential increase in costs and expenses Annual differential decrease in costs and expenses
Number of years applicable
Total differential decrease in costs and expenses Total differential increase in costs and expenses Total differential decrease in costs and expenses
Cost of new machine
Net differential decrease in costs and expenses, five-year total Net differential increase in costs and expenses, five-year total Net differential decrease in costs and expenses, five-year total
Annual net differential decrease in costs and expenses—new machine	Feedback Area